Ctrip, GreenTree Take Cornerstone Stakes in HK$1.4B Zhejiang New Century Hotel IPO

Chinese online travel giant Ctrip is subscribing for $32 million worth of shares in one of mainland China’s largest private hotel groups, Zhejiang New Century Hotel Management, ahead of the company’s upcoming Hong Kong IPO.

Ctrip, together with New York-listed Green Tree Hospitality Group Ltd, which is subscribing to $30 million in shares, form the cornerstone investors for Zhejiang New Century’s stock market debut, which aims to raise up to HK$1.4 billion ($180 million) through its initial public offering in Hong Kong.

The company, a unit of Chinese billionaire Chen Miaolin’s New Century Tourism Group, is expected to offer a total of 70 million shares, at a price ranging from HK$13.37 to HK$20.05 each, according to the prospectus for the share sale.

Raising Capital to Build More Hotels

According to the prospectus, New Century plans to spend about 25 percent of the proceeds from the IPO to develop high-end business and resort hotels; with 35 percent of the new cash earmarked for developing mid-range hotels; another 10 percent set aside for marketing and five percent for recruitment. Another 15 percent of the proceeds are said to be intended for upgrading existing operations and IT systems, with the remaining 10 percent set aside for general working capital.

As of August 31, 2018, Hangzhou-based New Century Hotels owns and/or manages 140 hotels in 22 provinces, municipalities and autonomous regions across China under 12 hospitality brands. In the prospectus, the company says that within the next five years it will open another 33,000 rooms in 135 hotels.

Company chairman Jin Wenjie said that China’s rising consumption in recent years provides the company with attractive opportunities for growth, with its range of brands providing mid-to-upscale hotels catering to the mainland’s booming middle class.

Zhejiang New Century’s prospectus showed that the hotel group achieved RMB 1.52 billion in revenue in 2015 to generate gross profit of RMB 244 million, while in 2016 it produced revenues of RMB 1.6 billion which resulted in gross profit of RMB 320 million. In 2017 revenue grew to RMB 1.67 billion with gross profit reaching RMB 432 million. In the eight months ending August 31, 2018, Zhejiang New Century posted revenues of RMB 1.12 billion and gross profit of RMB 250 million.

The joint sponsors for the IPO, which is set for March 11th, are China Galaxy International Securities and Bank of Communications International. Following the offering, there will be a lock-up period of six months for relevant investors.

A 14-Year Journey to an IPO

Founded in 1988, as the largest privately run hospitality firm in China, Zhejiang New Century first began preparing for an IPO in 2005, before changes in Hong Kong accounting standard that year forced the company to rethink its strategy.

New Century then prepared another IPO attempt in 2008 before the global financial crisis dampened investor appetites and deterred the planned listing. In 2013, the group made an effort to package five of its hotel assets to create the first mainland-based hotel real estate investment trust to be listed on the Hong Kong exchange, but ultimately decided on the corporate IPO.

Ctrip, as an online travel service provider, has been extending its tentacles to the offline world in recent years and showing a particular interest in the high-star rating hotel sector.

In October of last year. Ctrip launched its own high-end hotel brand Rezen, which has a strategic agreement in place with Shanghai Jinmao Hotel Management. In the next three years, the two partners plan to launch over 30 co-branded hotels, providing more than 6,000 rooms.

Earlier this month, Rezen Group also teamed up with Shanghai-based S&N Hotel Group to launch standardized upscale hotel products and collaborate in branding, big data application and conversion rate improvement.